Did China just blink in the tariff standoff?

Ed MorrisseyPosted at 8:41 am on April 10, 2018

Call it at least a half-blink. After a war of words between the US and China spooked investors around the world, Xi Jinping indirectly offered two concessions to US trade concerns while speaking at a business conference. Xi offered to open up the auto market and increase flexibility on banking, but left out a couple of other key issues for Donald Trump:

President Xi Jinping promised Tuesday to cut China’s auto tariffs and improve intellectual property protection in possible concessions aimed at defusing a worsening dispute with Washington over trade and technology that investors worry could set back the global economic recovery.

Speaking at a business conference, Xi made no direct mention of his American counterpart, Donald Trump, or the dispute. He promised progress on areas that are U.S. priorities including opening China’s banking industry and boosting imports but didn’t address key irritants for Washington such as a requirement for foreign companies to work through joint ventures that require them to give technology to potential local competitors.

Private sector analysts saw Xi’s speech as an overture to help end the biggest trade dispute since World War II. It has fueled fears the global economic recovery might be set back if other governments are prompted to raise their own import barriers.

It’s not a comprehensive concession, however. Xi didn’t address one of the biggest issues in US-China trade, and that might be big enough to remain as a sticking point:

Chinese officials deny foreign companies are compelled to hand over technology, but business groups say joint venture and licensing rules make that unavoidable. The United States filed a World Trade Organization complaint last month accusing Beijing of violating its market-opening pledges by imposing unfair contract terms and allowing companies to use foreign-owned technology after licensing periods expire.

Foreign companies complain Beijing is squeezing them out of promising parts of the state-dominated economy to promote the ruling Communist Party’s plans to create Chinese global competitors in fields including robotics, electric cars and pharmaceuticals.

Xi gave no details on how those conditions might change, leaving it unclear whether that might mollify Washington.

Easing rules that limit global automakers to owning no more than 50 percent of a joint venture with a Chinese partner might help to address Trump’s complaints about technology as well as giving them more flexibility in their biggest global market.

Intellectual property is the long game for China. Xi might decide that it’s worth giving ground in established industries, like autos and finance, while sticking to requirements that expose trade secrets in the high-tech sector, especially in communications. Xi has fully committed to the CM2025 project to make China entirely self-sufficient, and that requires picking the pockets of international innovators or swallowing them whole when that doesn’t work. Trump has already taken action to block those efforts on two occasions in recent weeks, especially with the attempted buyout of Qualcomm. It might not be as easy to stop the slow bleed of IP from forced partnerships with China’s government-backed enterprises.

Still, Trump might want to cash out when Xi offers these concessions more formally, assuming he ever does. He can declare victory and depart the tariff field while remaining vigilant on the IP front. With midterms looming, Trump can ill afford to pursue a major trade war which will likely have its greatest impact on the agricultural-producing areas of the country that formed Trump’s 2016 base. If China cheats, Trump can always come back around to a tariff fight, and the next time he’ll have more credibility to conduct one.